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Old 04-23-2009, 08:58 AM   #85
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Cap and trade does not affect the price of crude oil which is a world commodity. A fee (spelled TAX) is levied on the emissions of CO2 and that amount will be added to the electricity bill for businesses and consumers. The theory is that it makes people use less electricity and that it makes electricity producers use and develop renewable energy sources like wind and solar which now contribute a whopping 2% of our total energy needs and are very, very costly. Similar taxes will be placed on all fossil fuels as they produce any sort of energy and be paid for by the consumer. This would include our RV fuels. The reason for all of this is to reduce CO2 emissions which a declining number of scientists and regular people think are responsible for global warming which has not taken place now since 1998, but that is a different subject. I have seen estimates of between $1,800 and $3,100per year per family depending energy usage. Of course, those of us driving the gas guzzlers like RV’s would end up paying a lots more. The conspiracy theorist would think this is more about government control than about global warming and think that the politicians love the idea of “central planning” and massive new taxes that are not called taxes. I have been reading about global warming (Now called climate change as we have had no warming in a decade and with calling it climate change, too hot and too cold can all be blamed on our horrible, wasteful ways.) every day for the last several years and it is very obviously a political issue, not a scientific one. The US spent over $5 billion on research trying to prove it last year.
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Old 04-23-2009, 10:31 AM   #86
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Charlie,

I'm just a pore ole iron-mongering mechanical engineer from West Texas working for a company that builds and peddles engines and compressors to the oil and gas industry. Many of the questions you've asked probably couldn't be answered reliably by a PhD economist or a Federal government regulator, but I'll make comments where I can.

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- does Cap and trade have an effect on the oil price today? In the stock markets, the claim is that the market looks out 6 months so that the prices today are a reflection of where the traders believe things will go in that 6 month period. How is the commodity trading "window" different than that stock market period? Probably no impact this 5 minutes as nothing firm regarding energy policy has come out of Congress YET, so the markets are in a wait-and-see mode as it relates to cap-and-trade. In the long term, however, cap-and-trade is intended to cut consumption of (i.e., demand for) carbon-based fuels, so one could speculate that the cap-and-trade impact on crude oil and fuel prices will be a negative - it will tend to depress underlying prices (that is, the prices before the cap-and-trade taxes/fees/surcharges are added), although it will depress development of supplies as well which may ultimately be offsetting.
- what was the "trigger" for the start of the oil run price run up last year? I fully understand that once the movement started, there was some "piling on", with the commodity traders feeding on themselves with the prospects of a production shortfall versus demand. I can't post the same graph twice, but if you'll refer back to my post #57, one could argue that the start of last year's oil price runup actully took place in 1999, less a "blip" and correction in 2001/2002 related to 9/11 and supplies coming off the market when the Iraq war started.
- during the runup, which portions of the entire drilling, refining and distribution processes that your references describe were the biggest benefactors of the higher prices? Which of those biggest benefactors were also significant participants (from a volume perspective) in the commodity trading purchases during that same period? In a vertically integrated major oil company, margins decrease for production, increase for refining and increase (profit as a % of selling price) for distribution and retail during periods of low oil/product prices. The opposite holds true during high oil/product price periods - the production segment makes more money because it sells its product (crude oil) at a higher price, the refining and process segment gets squeezed because their feedstock (i.e., crude oil) costs have skyrocketed faster than they can increase product prices, and the distribution and retail segment is less profitable as, let's say, 7 cents (being generous) per gallon profit on $2.00 gasoline is much better than 7 cents per gallon profit on $4.00 gasoline.
- agreeing the ExxonMobil knew that a crash was coming because the crude price was spiraling too high, what defensive measures were being taken by them to deal with that inevitable crash? Where those measures unilateral in concept and execution? If not, what level of cooperation and with what other entitities were those defensive measures invoked? What impact did they have on the total crude marketplace? One would have to ask ExxonMobil about this. They are, of course, governed by the same price-fixing and restraint of trade laws as other industries, and the oil companies have been investigated numerous times by publicity-seeking state and Federal politicians for price fixing - how many of those allegations have been proven??
- within the entire oil community, knowledge of the extreme Green movement types and their influence on US governmental policy must exist. I'm assuming that there is a significant oil industry lobbying effort, which largely appears to have failed over the past 20 years to counter that Green movement (result: no new refinieries and most of the US oil drilling opportunites are off limits.) The goal of the some of Green types is to drive the price of gas at the pump to $8 per gallon to stifle demand. How much influence does the results of the Green movement was directly reflected into last year's oil price? I appreciate that Cap and trade is one of the programs that the Green movement is pushing but this question is more about their residual influence than about that specific program. Obviously, their efforts to restrict supply by eliminating drilling sites and new refineries will tend to drive prices up and make us more reliant on international sources of crude oil and refined products. In the most recent price spike, however, the response seemed to be more Economics 101. If you go back to the graphs I posted earlier (rig count versus oil price), the expected reaction occurred - higher crude oil and refined product prices drove the development of new/increased supplies (i.e., more drilling). Since these incremental supplies take time to come to market, what generally happens is that prices will crash as demand drops before all of the new supplies reach the market. That ultimately leaves us with reduced demand, increased supplies and hard times in the oil patch - the "feast or famine" cycle I described.
- The Department Of Energy was founded in the Carter years for the purpose of ending our dependence on foreign oil. Obviously they failed. The organization has grown significantly and spends $Bs of dollars. What influence does it have over daily crude oil/gas at the pump prices? Did this organization in any way contribute to last year's oil cost runup and, if so, how? It depends what they do with the Strategic Petroleum Reserve. If they're pumping oil into it, they fuel demand (which would tend to increase prices). If they're extracting oil from it and making it available to the market, they're increasing supply (which would tend to reduce prices).
- the Hedge funds has been a significant influence in parts of our economy. They are largely unregulated. To what extent have Hedge funds in general played a part in recent oil industry activities and how? Soros is one of the Hedge fund managers and has a specific social agenda. What specific influences has any activity that he has had been visible to ExxonMobil and other oil industry entities? Another one that I don't have the firsthand knowledge to answer.
Rusty
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Old 04-23-2009, 01:40 PM   #87
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Charlie,

I'm just a pore ole iron-mongering mechanical engineer from West Texas working for a company that builds and peddles engines and compressors to the oil and gas industry. Many of the questions you've asked probably couldn't be answered reliably by a PhD economist or a Federal government regulator, but I'll make comments where I can.



Rusty
Rusty, thanks for taking your time to go through my questions so painstakingly. I never expected you to be able to answer them and I'm surprised that you covered the "territory" as well as you did. My position on the whole matter of oil prices is that it is kinda like the eight blind men touching the elephant. Each of them "saw" the part that they touched and described it in the best terms that they could, yet their descriptions were widely varied based on their own specific experience with that elephant. So it is, I believe, with the whole oil industry. I'm very familiar with the influence that the Fed. brings through the FDA and, because of the news, to the mortgage market. The mortgage market/credit market is made very complex through a combination of that governmental influence and some highly questionable practices by the financial institutions. My weak little mind sees many similarities between the credit markets and the oil marketplace.

Each of us sees the situation from our perspective. Not that it does any good, but I'm always intrigued by trying to better understand the situation.

In closing, please allow me draw a couple more parallels. Madoff pulled off his scheme in what should have been a regulated marketplace. While I admit that he wasn't investigated to the extent that many companies in the oil patch have been over many years, he still managed to pull off quite a hoax, completely unnoticed. His scheme was no where near as sophisticated as Enron which also went undetected until it finally collapsed. In the past 12 months, corruption has surfaced in the very heart of our financial industry, across multiple banks and extending into the insurance industry - it was also unnoticed. Yet I contend that a junior account could easily have found any one of them, if they had looked without bias or restraint. I just cannot accept that somewhere, some place, the same things are not happening in just about every major industry - including oil. It is the what, the where and the extent that isn't very clear - to me or anyone else.
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Old 04-23-2009, 02:05 PM   #88
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At the end of the day, I go back to this - if the major oil companies could indeed control the price of oil (and they have PhD economists on staff), why would they want to see $140/bbl oil last summer and $30/bbl oil last month, or $10/bbl oil in 1999? Neither extremely high nor extremely low prices are in their best interests. It's easy to blame them when the price rises, but ignore their inability to hold onto the higher prices when the price crashes. The market dynamics are much more complex than that.

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Old 04-23-2009, 02:10 PM   #89
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If you are looking for causation of the problems, you would find your time a lots more productive looking at why politicians continually say we must rid ourselves of the scourge of foreign oil while it’s usage has doubled in the last 30 years, continue to vote down every opportunity for the US to get it’s own very abundant domestic oil proven resources. Why do we have 28 different formulations for gasoline by state environmental laws? Why have inland proven oil deposits been placed off limits. Why are the oil companies who pay over $3 in taxes for every dollar in profit constantly harangued by the politicians as the big evil profit mongering companies. Their profits are split amount the 180 million shareholder including almost all holders of IRA’s 401k’s, private and public retirement plans. We haven’t built a nuclear power plant in 30 years and the companies attempting to start new ones now are running into tremendous government permitting problems. We have not built any new oil refineries in over 20 years and none will be permitted. Why have coal powered power plants been refused to be permitted all over the country (three in Kansas alone). Existing hydro electrical plants in the West are bypassing huge opportunities for electrical production. With huge proven resources of natural gas, why do we import so much? My point is that the free market which works has been supplanted by the government and the problems we are leaving the cheap energy era lay in this are, not the oil companies which I will admit are less than perfect, but only a small part of the overall problem.
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Old 04-23-2009, 03:16 PM   #90
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My point is that the free market which works has been supplanted by the government and the problems we are leaving the cheap energy era lay in this are, not the oil companies which I will admit are less than perfect, but only a small part of the overall problem.
You and I are saying exactly the same thing. It is NOT a free market situation. I, too, blame the government for many of the very reasons that you point out but I'm sure there are dozens more points of governmental meddling that the oil producers could remind us about, too.

At the end of the day, I'm a simple guy who sees things in perhaps too simplistic a fashion. I can shop the different big box stores for tools. I can find extactly the same DeWalt saw in multiples stores for different prices. On one item, Lowe's is higher, on another, Home Depot is. I know they and most chains shop other company stores and compare prices. It might vary a few cents to a dollars, usually never more than 10% - but the price for the exact same item does vary. When I drive through my town, ever gas station is often selling RUG for the the exact same price. Concidence?
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Old 04-23-2009, 03:21 PM   #91
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When I drive through my town, ever gas station is often selling RUG for the the exact same price. Concidence?
I believe that was covered in one of the links I provided - page 14 of 17 on my monitor (listed on the footer as pages 23 and 24) in Understanding Today's Crude Oil and Product Markets. Retail gasoline prices are established by local competition, all else being equal. Unlike that DeWalt drill in Home Depot, gasoline prices are transparent to the customer from the street. If a station is significantly higher than one across the street, they won't get the sales, so they have to match the price. I've seen the managers of two stations diagonally across the same intersection here in Cypress (one an Exxon, the other a Texaco) get into a price war. One manager would go out to the sign and drop his prices by 2 cents/gallon. Within 10 minutes, the other manager would be out on his ladder dropping prices by 3 cents/gallon. This went on all day - they both had to be selling at a loss, but neither would be undersold!

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Old 04-24-2009, 06:44 AM   #92
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If you are looking for causation of the problems, you would find your time a lots more productive looking at why politicians continually say we must rid ourselves of the scourge of foreign oil while itís usage has doubled in the last 30 years, continue to vote down every opportunity for the US to get itís own very abundant domestic oil proven resources. Why do we have 28 different formulations for gasoline by state environmental laws? Why have inland proven oil deposits been placed off limits. Why are the oil companies who pay over $3 in taxes for every dollar in profit constantly harangued by the politicians as the big evil profit mongering companies. Their profits are split amount the 180 million shareholder including almost all holders of IRAís 401kís, private and public retirement plans. We havenít built a nuclear power plant in 30 years and the companies attempting to start new ones now are running into tremendous government permitting problems. We have not built any new oil refineries in over 20 years and none will be permitted. Why have coal powered power plants been refused to be permitted all over the country (three in Kansas alone). Existing hydro electrical plants in the West are bypassing huge opportunities for electrical production. With huge proven resources of natural gas, why do we import so much? My point is that the free market which works has been supplanted by the government and the problems we are leaving the cheap energy era lay in this are, not the oil companies which I will admit are less than perfect, but only a small part of the overall problem.
Actually Lindsay, two new refineries have been approved. One in Yuma, AZ and the other in Elk Point, SD. The one in Elk Point was, on the day approval was given, hit with over a dozen various law suits which must be taken care of before a shovel hits the ground. My sis, who lives about 15 miles from Elk Point says it will be years before any construction begins.
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Old 04-24-2009, 07:08 AM   #93
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My sis, who lives about 15 miles from Elk Point says it will be years before any construction begins.
We need to have asystem in America like they do in England where the loser of a lawsuit pays for the legal expenses of the winner. They should have to post a bond before these stupid lawsuits. Even the huge new solar electric fields in the West are under suit by other enviromentlist. We all know what happened when Cape Wind tried to put up a huge wind farm in an area where it could be seen from the second floor of the Kennedy compound.
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Old 04-24-2009, 11:08 AM   #94
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Linsay did not get the whole story as I caught only the tale end of it. California just pasted a bill yesterday, don't know if the Gov. Arnold signed it yet, to change the formula of their gasoline to a lower carbon amount. The person talking made a remark something like "and that change is why California has one of the highest prices for Gas."
If you had not mentioned 28 different State formulas I would have said that gas had just a summer and winter blend.
Thanks again for all the good questions and anwsers, you really have my brain cells working overtime.
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Old 04-25-2009, 06:57 AM   #95
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We need to have asystem in America like they do in England where the loser of a lawsuit pays for the legal expenses of the winner. They should have to post a bond before these stupid lawsuits. Even the huge new solar electric fields in the West are under suit by other enviromentlist. We all know what happened when Cape Wind tried to put up a huge wind farm in an area where it could be seen from the second floor of the Kennedy compound.
I am a retired attorney and I agree 1000%.

Side note, my wife was a law office manager and they did PI litigation. (I did criminal defense). They did NOT like my views on PI/trial attorneys.
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Old 04-25-2009, 07:01 AM   #96
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I am a retired attorney

I am sorry. You seemed like a regular guy.
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Old 04-25-2009, 07:02 AM   #97
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Linsay did not get the whole story as I caught only the tale end of it. California just pasted a bill yesterday, don't know if the Gov. Arnold signed it yet, to change the formula of their gasoline to a lower carbon amount. The person talking made a remark something like "and that change is why California has one of the highest prices for Gas."
If you had not mentioned 28 different State formulas I would have said that gas had just a summer and winter blend.
Thanks again for all the good questions and anwsers, you really have my brain cells working overtime.
I believe AZ requires as many as 4 different blends. Each must be switched (without cross contamination) at least twice a year. This puts a burden on the refinerys and shippers which results in a rise in prices. BTW. the changes and formulations are different b/t AZ and CA and even at difference places in each state.
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Old 04-25-2009, 07:06 AM   #98
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I am sorry. You seemed like a regular guy.
But I try! Please consider I was a physicist for 25 years b4 law school.. I went to LS to be a patent attorney but discovered after the fact that 52 YO new patent attorneys are unemployable!
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